SBA SOP 50 10 8, B.Ch5.A.4 — Construction Loan Provisions
Verbatim text of SBA SOP 50 10 8 section B.Ch5.A.4 (Construction Loan Provisions), effective 2025-06-01. 5 provision(s) quoted from the SOP PDF. SBA's own document page serves superseded editions, and the SOP is further amended by policy notices — read this with the notices that touch it.
Verbatim regulatory text
Verbatim provisions from SBA SOP 50 10 8, B.Ch5.A.4 — Construction Loan Provisions — each quote is a verified substring of the regulator-published source snapshot, not retyped. Quoted for reference; this is not legal advice. The operational layer (P&P updates, prompts) lives in the regulation update kits.
SOP 50 10 8 B.Ch5.A.4
4. Construction Loan Provisions 13 CFR §§ 120.200 and 120.174 In the construction of a new building or an addition to an existing building, regardless of whether the project is one that uses an independent licensed contractor or is a “Do-it-yourself” project, Lender must obtain evidence of compliance with the "National Earthquake Hazards Reduction Program Recommended Provisions for the Development of Seismic Regulations for New Buildings" (NEHRP), or a building code that has substantially equivalent provisions. i. The NEHRP provisions may be found in the American Society of Civil Engineers (ASCE) Standard 7 and the International Building Code.
SOP 50 10 8 B.Ch5.A.4.ii
ii. Examples of evidence include a certificate issued by a licensed building architect, construction engineer or similar professional, or a letter from a state or local government agency stating that an occupancy permit is required and that the local building codes upon which the permit is based include the Seismic standards. If the construction component of the 7(a) loan is $350,000 or less, SBA has granted a blanket waiver on the Lender’s requirement of a performance bond and the labor and materials payment bond and evidence that the contractor carries appropriate Builder's Risk and Worker's Compensation Insurance when the Lender applies the same policies, procedures, and processes for offsetting the risk of construction that it applies to its similarly-sized, non-SBA guaranteed loans for construction. 13 CFR § 120.200 If the construction component of the 7(a) loan is more than $350,000: Prior to the commencement of any construction, Lender must obtain from Borrower (13 CFR § 120.200):
SOP 50 10 8 B.Ch5.A.4.i
i. Evidence that the licensed contractor has furnished a l00% performance bond and labor and materials payment bond and that the contractor carries appropriate Builder’s Risk and Worker’s Compensation Insurance; a) Only a corporate surety approved by the Treasury Department using an American Institute of Architect's form or comparable coverage may issue these bonds. b) Only Borrower may be named as obligee on the bonds. c) SBA has granted a blanket waiver on the Lender’s requirement of a performance bond and the labor and materials payment bond and evidence that the contractor carries appropriate Builder's Risk and Worker's Compensation Insurance when: i) The Lender has retained the services of a third party construction management firm. The Lender must ensure that the third party provides commercially reasonable and prudent monitoring including funds control for all disbursements; or ii) The Lender has an existing internal construction management department that routinely manages construction for its similarly-sized, non-SBA guaranteed commercial loans. The Lender must ensure that the monitoring services provided by its construction management department are commercially reasonable and prudent and include funds control for all disbursements. iii) Lender must document in the applicable loan file that the construction was completed in conformance with the plans and specifications and that all lien waivers and releases from all material men, contractors, and subcontractors involved in the construction have been obtained. If any mechanics’ or other liens are filed or take priority over the Lender’s lien on the collateral, the Lender may be subject to a repair or denial of the guaranty. (13 CFR § 120.200) d) A copy of the final plans and specifications; and e) A copy of a Construction Contract with: i) An acceptable licensed contractor at a specified price; and ii) An agreement that Borrower will not order or permit any material changes in the approved plans and specifications without prior written consent of Lender and the surety providing the required bonds. ii. Evidence that Borrower has injected the required funds into the project prior to disbursement of the loan, if Borrower is injecting funds into the construction project;
SOP 50 10 8 B.Ch5.A.4.i.iii
iii. Obtain evidence of Borrower’s ability to pay cost overruns or additional construction financing expenses prior to approving any contract modification. Lender and SBA are not obligated to increase the loan to cover cost overruns; iv. Make interim and final inspections to determine that construction conforms to the plans and specifications; v. Obtain evidence that the building, when completed, will comply with all state and local building and zoning codes, and applicable licensing and permit requirements;
SOP 50 10 8 B.Ch5.A.4.v.vi
vi. Obtain lien waivers or releases from all material men, contractors, and subcontractors involved in the construction. “Do-it-yourself” construction and/or installation of machinery and equipment, or situations where the Borrower acts as its own contractor have proven to be generally unsatisfactory and can cause problems with lien waivers and mechanics liens, causing potential losses to the Lender and/or SBA. “Do-it-yourself” construction including renovations and/or installation of machinery and equipment, or situations where the Borrower acts as its own contractor may be permitted, if the Lender can justify and document in the loan file that: i. The Borrower/contractor is experienced in the type of construction and has all appropriate licenses; ii. The cost is the same as, or less than, either: a) What an unaffiliated contractor would charge as evidenced by 2 bids on the work; or b) A single estimate provided by a third-party construction management firm, or by the Lender’s existing internal construction management department if the Lender has an existing internal construction management department that routinely manages construction for its similarly-sized, non-SBA guaranteed commercial loans. iii. The Borrower/contractor will not earn a profit on the construction.
Operationalizing SBA SOP 50 10 8, B.Ch5.A.4 — Construction Loan Provisions
This is verbatim, source-snapshotted regulator text from the Claude for Compliance open corpus. To turn a rule like this into compliance work product: gap-analyze your policies and procedures (P&Ps) against these requirements to surface stale, conflicting, or missing provisions; operationalize any change with a ready-to-run update kit; and produce audit-ready evidence — every step grounded only in the regulator’s own words, never invented.
To work from the whole rulebook rather than this one page: download the corpus — every register on this site, verbatim, each with its source snapshot and effective date — then follow the methodology. It asks your assistant to answer only from the downloaded text, cite the register id and effective date it used, and tell you when the corpus does not cover something instead of filling the gap from memory. Running it locally also means no one sees which regulations you are looking at.
Source of record: https://claudeforcompliance.com/regs/sba-sop-b-ch5-a-4/
· register sba-sop-b-ch5-a-4 · Claude for Compliance. Free to read and download;
see regulatory updates and methodology.